Arab countries are facing, as most other developing countries, a number of economic challenges inherited from the 12th century and which may be exacerbated in the 21st century. Among these challenges are globalisation, water crises and sustainable development, technological change, and economic consequences of the peace process.
Globalisation, as a growing international integration of markets for goods, services and capital, can be driven by vaious forces. First is the unprecedented increase in the international trade flow of about fifteen-fold during the last four decades (as opposed to a six-fold increase of the worldâ??s population). Developing countries increased their share of global trade to 30 percent in 1995, compared with 24 percent in 1985. One of the important features of global trade is the increasing share of intra-firm trade, encouraged by foreign direct investment (FDI). Multinational world trade amounted to US$5.3 trillion in 1992, compared to world exports of US$4.6 trillion (UNCTAD, 1998).
Second is the force of liberalising financial markets and the gradual integration of those markets in developing countries with a global financial system. This force has accelerated after many developing countries agreed to remove restrictions on payments for account transactions, and abandoned control on cross-border financial flow in general, and foreign inflow in particular. This has been reflected in an increases in the number of developing countries trading under current-account convertibility to 70 percent in 1997, compared with 37 percent in 1985.
Third, the role of private FDI has been mounting and now outweighs that of official FDI. FDI plays an effective role in the diffusion of know-how and capital, and in the redefinition of the labour division on a global scale. Private capital flow, raised to almost 2 percent in developing countries, is still modest. Although this share has increased to 38 percent of the worldâ??s total, two-thirds of these flows went to just eight countries (World Bank, 1996).
Fourth, technological advances in general, and in information technology in particular, have been contributing enormously to integrae markets all over the world. Electronic commerce has been deepening economic interdependence. Goods and raw materials are no longer the only objects of trade. Crossing borders, among others, services, culture, media, entertainment, as well as electronic commerce has granted a new reality, which hardly can be resisted. Globalisation cannot be halted, and the economic reach of nation-states is being challenged. Governments have little choice but to accept the very fact that they must coordinate their efforts as never before. Technology and interdependence are making the distinction between industrial and domestic policies irrelevant.
Last, but not least, globalisation is influenced as well by the projected increase in the international trade flow, 6 percent per annum, due to multilateral trade agreements, e.g., the Uruguay Round, and other regional trade arrangements. The Uruguay Round enhanced globalisation by liberalising trade in goods and services. Liberalisation is ensured by means of a number of multilateral agreements, such as those on tariffs and trade, agriculture, textiles and clothing, rules of origin, trade-related aspects of intellectual property rights, trade in services, etc. The members of the World Trade Organization (WTO), which was initiated by the Uruguay Round, numbered 134 on 10 February, 1999, of which nine are Arab countries.
The second challenge facing Arab countries is the water crisis and sustainable development. The population of the Arab region is about 3 percent of the worldâ??s total, whereas its share of the renewable water resources is only 1 percent (Rogers and Lydon, 1994). Per capita water reached 3300 m3 in 1960, declined to 1250 m3 in 1995, and is expected to decline further to 667 m3 in 2025 (World Bank, 1993).
The water crisis in Arab countries is caused mainly by mismanagement. For instance, the intensive natural water used for irrigation in the Nile, Euphrates and Tigris river valleys will deteriorate the quality of water. Moreover, the water wasted in the agricultural sector in most Arab countries is a phenomena. Whereas this sector consumes about 88 percent of the water used in the Arab world, the percentage wasted is about 66 percent. This is mainly due to the use of traditional irrigation methods. The other uses of water, 7 percent, is for domestic purposes, for which the waste reaches 40-60 percent of the distributed water (Bel Haj, 1998).